BUACC 5901 Financial Ratio Analysis of Transurban Group

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BUACC 5901
Group Assignment

Table of Contents
QUESTION 1................................................................................................................................... 2
REFERENCES...................................................................................................................................7
List of Tables
Table 1 Key financial data of Transurban.......................................................................................2
Table 2 Ratio analysis of Transurban Group..................................................................................3
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QUESTION 1
Transurban primarily builds the Toll roads in Australia as well as overseas. The 2018 annual
report of the company is used to compare the financial results between 2017 and 2018
(Transurban, 2018). The data and information derived from the financial statements help the
senior management of Transurban to make an effective decision for improving its financial
position and profitability. The financial statements of Transurban will be further analysed to get
insights on its profitability, liquidity and capital structure position.
The key financial figures and data of Transurban are interpreted by using ratio analysis for the
years 2017 and 2018. Different companies use ratio analysis which is the most useful
management accounting tool to assess the different areas along with gaining quick insights on
their financial performance and position.
Table 1 Key financial data of Transurban
Key financial data (in m
AU$)
2018 2017
Working capital 1,284 928
Fixed Assets 24,605 22,040
Capital employed
(Total Assets – Current
Liability)
24,203 21176
Revenue 3,298 2,732
Net sales 2340 2211
Net income 325 314
Net operating profits 289 174
Total assets 26,426 23,315
Current assets 1,821 1,275
Current liabilities 2223 2,139
Total Equity 6766 5,799
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Total Debt 15,395 13,748
Profit after tax 468 209
Net worth
(Equity share capital +
Reserve and Surplus)
5591 4490
Source: Transurban, 2018
The ratios for Transurban are calculated by using the key financial data so as to gain insight into
key financial aspects and also guide Transurban to make effective and informed decisions.
Table 2 Ratio analysis of Transurban Group
S.
No.
Ratio Formula 2018 2017 Analysis and
interpretation
1 Current ratio Current assets /
current liabilities
0.82 0.59 The current ratio was
increased by 0.23 in
2018.
2 Quick ratio Quick assets/
Current liabilities
0.71 0.87 The decline by 0.16 is
observed in quick ratio
while comparing to
2017.
3 Return on net
assets
Net income/ (Fixed
Assets + Working
capital)
0.012 0.013 The return on the net
asset was slightly
declined by 0.001
between 2017 and
2018.
4 Return on
Equity (%)
Profit after Tax ÷
Net worth
(Equity share
8.37
%
4.65% The steep increase was
observed in return on
equity by an increase of
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capital + Reserve
and Surplus) *100
3.72% in comparison to
2017.
5 Net
profit/loss
margin (%)
(Net income or
loss/ Net sales) *
100
13.8
%
14.2% Slight decline of 0.4 %
was observed in net
profit margin
6 Return on
capital
employed
Net operating
profit/ (Total
assets – Current
liabilities)
0.12 0.008 Positive impact on
return on capital
employed was observed
by 0.112 in comparison
to 2017.
7 Capital
gearing ratio
Equity/ debt 0.44 0.42 A slight increase in
capital gearing ratio is
seen by 0.02 while
comparing between
2018 and 2017.
The financial and liquidity position of Transurban is demonstrated and compared in the above
table through ratio analysis.
The discussion related to it is below:
CURRENT RATIO: this ratio is used to identify the liquidity position of the company. The
standards current ratio is 1:2 (Hoque and Pearson, 2018). The current ratio for 2017 is 0.59
while the current ratio for 2018 is 0.82. It indicates that the liquidity position of the company is
improved as the current ratio was increased by 0.23 in 2018. The increase in the current ratio
defines the ability of the company in making current debt payments easily.
QUICK RATIO: the quick ration is used to measure the ability of the company in paying its
current liabilities with quick assets such as cash and cash equivalents, short-term investments,
current account receivable, or marketable securities (Bruno and Lapsley, 2018). The ideal quick
ratio is 1:1. The quick ratio for 2017 is 0.87 and that of 2018 is 0.71. The decline by 0.16 is
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observed in quick ratio while comparing to 2017 which means that the company might need to
sell some of its long-term assets to pay its current liabilities.
RETURN ON NET ASSETS: this ratio represents the earning per rupee of assets invested in the
company. The return on net asset ratios in 2017 and 2018 are 0.013 and 0.012 respectively. The
return on the net asset was slightly declined by 0.001 between 2017 and 2018.
RETURN ON EQUITY (%): the ratio is used by the company to measure its profitability of the
equity fund invested (Booth, 2018). The return on equity ratios for the year 2017 and 2018 are
4.65 % and 8.37 % respectively. The steep increase was observed in return on equity by an
increase of 3.72% in comparison to 2017.
NET PROFIT/LOSS MARGIN (%): this ratio considers all the direct and indirect cost to measure
the overall profitability of the company. Slight decline of 0.4 % was observed in the net profit
margin by comparing the same that is 14.2 % for 2017 and 13.8 % for 2018. It represents that
the company Transurban needs to focus on controlling the costs and expenses.
RETURN ON CAPITAL EMPLOYED: this ratio is used to measure the percentage of return in the
company on the funds invested by the owners of the company (Bruno and Lapsley, 2018). The
ratios for return on capital employed for the years 2017 and 2018 are 0.008 and 0.12
respectively. Positive impact on return on capital employed was observed by 0.112 in
comparison to 2017. The company is slightly better in managing any decline in sales in the near
future.
CAPITAL GEARING RATIO: this ratio is used to get critical information about the capital
structure of the company. It is the most significant ratios used by investors before investing in
any organization (Hoque and Pearson, 2018). The capital gearing ratio for 2017 is 0.42 while the
capital gearing ratio for 2018 is 0.44. A slight increase in capital gearing ratio is seen by 0.02
while comparing between 2018 and 2017.
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Thus from the above ratio analysis, it is indicated that the company Transurban is in the
position where the company needs to improve its financial position and profitability. It was
mentioned in the financial report of Transurban that the financial position, as well as
performance of the Group, was specifically affected by the transactions during the reporting
period that is mentioned as Acquisition of A25 Toll Road and Bridge on 5th June 2018 reflecting
on the operating results and financial position of the Group (Transurban, 2018). And successful
completion of its pro-rata renounceable 3 for 37 entitlement offer raising gross proceeds of
$1,345 million at an issue price of $11.40 per security On 30 January 2018 (Transurban, 2018).
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REFERENCES
1. Booth, P., 2018. Management control in a voluntary organization: accounting and
accountants in organizational context. Routledge.
2. Bruno, A. and Lapsley, I., 2018. The emergence of an accounting practice: The
fabrication of a government accrual accounting system. Accounting, Auditing &
Accountability Journal, 31(4), pp.1045-1066.
3. Hoque, Z. and Pearson, D., 2018. Accountability reform, parliamentary oversight and the
role of performance audit in Australia. VALUE FOR MONEY, p.175.
4. Transurban, 2018. 2018 Transurban Annual Report (Online) available at
https://www.transurban.com/content/dam/investor-centre/01/FY18-Appendix4E.pdf
Accessed on 9th May 2019
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